Dynasty Kitchen Cabinets v. Soheili et al. Date:, 2011 BCPC 414

Citation: Dynasty Kitchen Cabinets v. Soheili et al. Date: 20111216 2011 BCPC 0414 File No: S67755 Registry: Surrey IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: DYNASTY KITCHEN CABINETS LTD. CLAIMANT AND: SHAHIN SOHEILI and HOMEMARK CONSTRUCTION AND BUILDING INDUSTRIES CORPORATION DEFENDANTS REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE W.G. MACDONALD Appearing for the Claimant: J. Ayache Appearing on their own behalf: S. Soheili Place of Hearing: Surrey , B.C.

Date of Hearing: September 27, 2011 Date of Judgment: December 16, 2011 [ 1 ] THE COURT : In this case the claimant is Dynasty Kitchen Cabinets Ltd., and the defendants are Shahin Soheili in his personal capacity, and the corporation Homemark Construction and Building Industries Corporation. [ 2 ] At the commencement of the hearing the defendant conceded that the amount of damages was correct as claimed, namely $25,266; in fact, the claimant alleges that his real loss is about $42,000 but he has reduced that amount to come within the jurisdiction of this court.

I did not get into the issue of the damages, but the defendant concedes that the claimant is entitled to a judgment in that amount.

The amount is not in dispute. [ 3 ] The defendant also agreed the defendant Homemark consented to a judgment against it through its officer, namely Shahin Soheili, and so at the commencement of the hearing I granted judgment in favour of the claimant against the corporate defendant Homemark, and the trial was held merely on the issue of whether or not there was any personal liability on behalf of the owner/director of Homemark, namely Shahin Soheili. [ 4 ] It turns out that the parties have done business together for a period of about 15 years. Their relationship was both: between companies and personal.

There were dinners and friendship and that sort of thing, so they had a personal relationship, but all of their business dealings were done from corporation to corporation. [ 5 ] Mr. Joe Ayache gave evidence on behalf of the claimant company, he is the owner of that company, and he said when he does dealings with most companies, in fact all companies with this exception, that he demands 40 percent of the contract price as a deposit and a further 50 percent upon delivery before installation.

The final ten percent is payable after completion of the kitchen cabinets or whatever cabinets he is providing. [ 6 ] In this particular case, he varied from his invariable practice and accepted a much smaller down payment from Mr. Soheili. The reason he did that is because of his friendship with Mr. Soheili and because it was Mr. Soheili's personal home, or at least that is what he

believed. The home in question where the cabinets were supplied was at 17379 Abbey Drive in Surrey, British Columbia, and as I foundout from the defendant's evidence, it was indeed his personal residence. He, however, did not hire any of the people himself but did it allthrough his corporate presence, Homemark. Homemark hired all the contractors; Homemark was to pay for all the services and thegoods received, including things like kitchen cabinets. [7] Unfortunately, the deal did not work out as Mr.

Soheili I'm sure had hoped in that he did not build the house and either make aprofit or live for an extended period of time in the house; what happened is he was unable, basically, to make his mortgage payments andhe says he was unable to make his mortgage payments because of the financial crash in the U.S. which affected the company he wasborrowing through, and as a result they refused or failed to advance payments for the advances that he required to pay creditors.

In theend result, the house went into foreclosure and was ultimately sold on foreclosure for, I believe, approximately $1.375 million, andunfortunately for Mr. Soheili, that resulted in a net loss to him in that the mortgage in fact was over $1.4 million and he said there wasabout a $100,000 shortfall when the house was sold. [8] In addition to that $100,000 shortfall, Mr.

Soheili agrees in his evidence that Homemark, the defendant company, owesapproximately $250,000 to people like the claimant here, and others, who supplied products and services for the building of hisresidence. [9] The thing which makes this case rather different from most claims of this nature is not just the fact that this was the personalresidence of Mr. Soheili, but he also admits that he owes money to the corporate defendant, Homemark, in the approximate amount of$250,000. Mr. Ayache says that while he has no written or implied or even oral guarantee of a personal nature from Mr.

Soheili, that thisdoes not seem fair to him that he was building his personal residence, that he benefited from it, and that he feels he is entitled to ajudgment personally against Mr. Soheili. [10] Mr. Soheili, in general, as is any owner of a limited company, is entitled to rely upon the limited liability that corporations have. That is one of the major purposes that corporations are formed. They are formed so that if there is a financial difficulty and thecorporation is sued or unable to pay debts, that those debts and obligations do not fall back on the shareholders or the owners of thecompany.

And certainly in most cases that is the end of the matter, and the only way that one can "pierce the corporate veil" is if there issome sort of fraud or improper conduct. [11] The law on that subject is settled, and is discussed in a Supreme Court of Canada decision and many other decisions, as well astextbooks. The defendant, in the material he provided and which was marked as Exhibit 1, includes a decision of my brother JudgeSkilnick in the Abbotsford Provincial Court on January 28th, 2009 in the case of E.M. Plastics and Electrical Products v. Abby Signs.

Now, in that particular case Judge Skilnick found no fraud, no improper conduct, refused to pierce the corporate veil and in factdismissed the claim against the individual whom E.M. Plastics was suing. [12] But he did set out the law as well. Paragraphs 6, 7 and 8 of Judge Skilnick's decision are relevant. Paragraph 6 he says: At law, a corporation is a legal entity distinct from its shareholders, officers or directors. A contract with the corporation does notautomatically bind those individuals or rest liability under the contract with them.

Sometimes a court will place liability for the debts ofa corporation on a principal of the company in cases where the principal has independently guaranteed the debts of the company. Liability in such cases flows not from the original contract, but from the guarantee. There is no evidence of any such guarantee in thiscase.

I pause at that point to say there is also no evidence of a guarantee in the case at bar between Dynasty and Soheili and Homemark, andwhether it be written or oral, I do not find any evidence of a personal guarantee. [13] Judge Skilnick continues at paragraph 7: A court may also find personal liability on the part of a principal for corporate debts in cases of fraud or improper conduct. There is noevidence of that alleged here. The inability of the Corporate Defendant to pay the Claimant arises from economic conditions andcircumstances. It is clear that Mr.

Lardeur has not personally benefitted from the non-payment and has in fact suffered personal financialloss as a result of the economic failure of the Corporate Defendant. [14] The case at bar differs from Judge Skilnick's case in that, in my view, in the case at bar, there is evidence of fraud or improperconduct. The inability of the corporate defendant to pay the claimant did not arise from economic conditions and circumstances; in fact,the only reason that the corporate defendant is unable to pay the claimant and others like him is because Mr.

Soheili has failed or refusedto pay the $250,000 debt he owes to the company. If Mr. Soheili paid the $250,000 to Homemark, Homemark could pay all of its debtsand would not be in a difficult financial situation. [15] Therefore, we get to the question of whether or not he should have paid, did he pay, and is it a fraud or is it improper conduct? [16] I will quote from the Supreme Court of Canada, as Judge Skilnick did in paragraph 8: In Atco Ltd. v.

Calgary Power Ltd. (SCC), [1982] 2 S.C.R. 557, the Supreme Court of Canada discussed under whatcircumstances a court will look behind the corporation to rest liability on a principal, (or “pierce the corporate veil”, to use the jargon ofthe corporate world). Madam Justice Wilson wrote at pp. 561-2: The company itself continues to own, operate, manage and control its assets regardless of who owns or controls it. This, as I understandit, is the essence of the separate legal personality of the incorporated company recognized by the House of Lords in the celebrated caseof Salomon v. Salomon and Co., [1897] A.C. 22.

Since the Salomon case the complete separation of the company and its members hasnever been doubted. It is true that there are instances in which the legislature and the courts have allowed the corporate veil to be liftedbut when the legislature has done this it has done it by express statutory provision, for example, by expressly providing that the membersof a company may become personally liable for the company’s debts if the company continues to do business at a time when the numberof its members has fallen below a prescribed minimum.

The courts have permitted the veil to be lifted if the corporate personality was

being used as a cloak for fraud or improper conduct. The courts, however, have only construed statutes as permitting the corporate veil to be lifted if compelled to do so by the clear language of the legislation. [ 17 ] This is not a case where some statute is put forward as piercing the corporate veil. This is a case in which the suggestion here is that the corporate personality was being used as a cloak for fraud or improper conduct. [ 18 ] In this particular case, it seems to me that Mr.

Soheili, unlike the defendant in Judge Skilnick's case, personally benefitted from all of these items that were provided through the corporate entity. The $250,000 in goods and services went to him personally. As a result, instead of losing approximately $350,000 in the foreclosure, he lost $100,000. [ 19 ] Mr. Soheili personally benefitted from all of the goods and services that were supplied through the company because he was the owner of the property.

So whatever the amount of the loss, it is $250,000 less than it would have been had the company paid their debts, and the only reason the company cannot pay their debts and did not pay their debts is that Mr. Soheili failed or refused to pay the company. As a result, in effect he has set up this company in order to avoid paying them those debts.

If one can do that, you can imagine the situation where, if I am a personal individual and want to build a house for myself, all I have to do is incorporate a company, hire everybody through the company, do not pay the company a penny, let the company go broke, not pay any of its debts, and avoid all personal responsibility and get the benefit of everything that was supplied. [ 20 ] In this case this is exactly what happened. As a result, there was either a fraud or something akin to fraud, and at the very least improper conduct by Mr.

Soheili in order to avoid the debts personally, and as a result this judgment is against the corporate defendant and against Mr. Soheili personally in the amount of $25,266. (REASONS FOR JUDGMENT CONCLUDED)